They pose as experts, guaranteeing they can stop a home foreclosure. They may promise they can get you to the head of the line, leapfrogging over the thousands of other people trying to renegotiate their mortgage with the bank. But most of all, they want money upfront.
These are mortgage scammers. And now, some national organizations, including the Federal Bureau of Investigation, are targeting them.
On Thursday in New York, one of the organizations that tries to steer homeowners to legitimate counselors teamed up with Mayor Michael Bloomberg to roll out a “Loan Modification Scam Alert.” The goal: to prevent yet more people from giving money to financial predators. The nonprofit organization, NeighborWorks, has already tried to warn distressed homeowners in California, Florida, Texas, Ohio, and Maryland. California leads the nation in complaints about mortgage fraud.
“It is a rising problem, with more and more people every day calling to say they have been scammed,” says Eileen Fitzgerald, chief operating officer of NeighborWorks. “Folks are desperate, and they are willing to try anything.”
Although there are no national numbers on how many people are being scammed – many people are too embarrassed to report they got taken – there are probably hundreds of thousands of victims, Ms. Fitzgerald says.
The problem will get worse this year, she anticipates, because so many adjustable-rate mortgages (ARMs) are coming up for renewal – especially in California, Florida, Arizona, and Nevada. Particularly problematic could be option ARMs, in which the homeowner decides how much money he or she can afford to pay each month.
“Your ability to pick the amount you can afford to pay is definitely becoming much harder, and the monthly payments on the vast majority of these mortgages are going up,” Fitzgerald says.
At the same time, the number of loan modifications made by the companies servicing mortgage payments remains relatively small but growing.
As of the end of January, 116,000 permanent loan modifications had made since last February, when the Obama administration unveiled its Making Home Affordable Program, according to the US Treasury on Wednesday. The Obama program provides incentives to lenders to modify mortgages.
The 116,000 figure is double the number in December. In addition, 76,000 homeowners have been offered permanent loan modifications but have not signed the paperwork yet.
However, many more mortgage problems persist. As of September 2009, the Mortgage Bankers Association reported, 5.8 million mortgages were at least 60 days delinquent. This includes homes that have entered the foreclosure process.
TransUnion, a credit reporting company, released its own numbers on Tuesday. At the end of the fourth quarter last year, it said, 6.89 percent of all US mortgage payments were at least 60 days past due. That was an all-time high.
Enter unscrupulous loan-modification companies. They advertise on late night-television or radio shows and sound as if they are linked to the Obama program.
“Many of them have the word ‘hope’ in their phone number,” says Jonathan Mintz, commissioner of the Consumer Affairs Department in New York. “But it’s a false hope.”
New York City recently passed a mortgage antifraud law that requires loan-modification companies to reveal that they cannot charge upfront fees. People in need are encouraged to call a 311 phone number to get referred to legitimate counselors. But many of the scammers are located in other parts of the United States.
For example, a man in Queens, a borough of New York City, recently contacted a California company that was advertising heavily on radio and television that it could modify mortgages.
“They asked for $4,800 upfront, and the desperate homeowner sent them $2,200 dollars,” says Petra Tuomi, policy director at the Center for New York City Neighborhoods, a network of nonprofits that provides services for housing counseling. “They told him to stop paying the mortgage to the lender, and then he was stuck with them.”
The company has since gone out of business, and the man lost his $2,200.
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